Why the AI Bubble Doesn’t Feel Like Other Bubbles

Are we in an AI bubble?

On the one hand, lots of people think we’re in an AI bubble. Including Sam Altman, whose OpenAI may be the single largest cause, and beneficiary, of the AI bubble.

On the other hand … vibes?

By which I mean: I’ve been in bubbles before. On paper, this most definitely reads like one. In the real world, it feels like something else.

My first bubble was the late ’90s dot-com boom, which was a real hoot for quite a while: awesome launch parties for companies you’d never heard of; great Super Bowl ads. But mostly the sense that everyone you knew was investing in dot-com stocks because that was easy money. Sports bar TVs were tuned to CNBC.

A few years later, after we all sobered up and promised not to fall for that again, we did it all over again. This time with houses. No parties this time (at least none I was invited to), but everyone wanted to talk your ear off about their five-year ARMs, and how they’d already flipped a house and were getting ready to do it again.

And then we did it again, with crypto during the pandemic. That one brought us a new round of Super Bowl ads, and a wave of people insisting that Solana or Doge or whatever was going to be the next bitcoin. Even worse, some of these people insisted that crypto was for more than just betting on — you could actually build the future with it. (While we’ve moved on from that moment culturally, we should also note that crypto’s biggest boosters have seen their political influence shoot up dramatically in the last year.)

The point being that these were all bubbles you could read about, and document using financial metrics. But you could also just feel them, in ordinary life — even if you weren’t wrapped up in dot-com IPOs or ninja loans, you knew people who were, and they wouldn’t stop yapping about them.

And today, AI is most definitely in the discourse: “How bad is AI going to screw us over?” is frequently replacing “What shows are you streaming these days?” as a conversation starter/filler for me and my middle-aged pals.

But right now, unless you’re in a very specific industry or part of the world — like the kind where you turn down $100 million job offers from Mark Zuckerberg because you’re holding out for $250 million — it just doesn’t feel that bubbly.

Because it’s not. At least, not in the way past bubbles were.

In 2001, more than half of US households owned stock, up from about a third just a decade earlier — a 20-point leap fueled by E-Trade, Ameritrade, and people betting on IPO pops.

By 2004, nearly 70 % of Americans owned homes, and subprime loans were soaring.

And in 2021, one in six US adults said they had bought crypto — a number that shot way higher if you were just talking to young men.

But as widespread as the effects of the AI boom might be, the industry still seems quite narrow. Yes, you might know someone who is working on an AI startup. But it’s much more likely that someone working on AI works for one of a few giant tech companies, which have the resources to spend a gazillion dollars on talent and compute.

And those same companies also dominate the investing landscape: You can probably find an AI company you’ve never heard of and take a flyer on it. But most of the action is happening inside corporate balance sheets, at companies that are already huge.

Nvidia, Microsoft, and a handful of other Big Tech companies have accounted for most of the market’s recent gains. And a mere seven tech stocks now account for a huge chunk of the S&P. (This means that most Americans actually do have huge exposure to AI, via index funds in their retirement accounts. But that’s not nearly as fun as putting $100 into theglobe.com and watching it shoot up to $1,000 in a single day. Which is why no one is bending your ear at the soccer game, talking about their Vanguard account.)

So yes, this is probably a bubble — the spending, the eyebrow-raising dealmaking, the magical thinking all fit. But it seems, for the moment, one you’re really going to feel in a boardroom, not a backyard.

Next question: If we’re in a bubble, and it pops, will normal people feel that?